2021 remains Nigerian oil industry’s golden year

Wed, Dec 1, 2021
By editor

Oil & Gas

Aside the defects in the new Petroleum Industry Act and the plans by the federal government to amend the law, the new campaign against fossil fuel due to its negative effects on the environment remain major challenges in the drive to attract funds for oil explorations and development in Nigeria.

By Goddy Ikeh

DESPITE the various contending issues raised by some state governors, industry experts, stakeholders and oil producing communities on the Petroleum Industry Bill, PIB, President Muhammadu Buhari went ahead to sign the bill into law in 2021. The bill scaled through the National Assembly after about 16 years of failed attempts to pass the bill.

With this feat, the year 2021 will surely go down in the annals of the Nigerian oil industry as the golden year. And in spite of the shortcomings of the PIA, it is expected that the new petroleum law will attract more investments into oil and gas explorations, which unfortunately had been witnessing a lull due to the uncertainties over the law governing operations in the industry. In addition, the PIA is also expected to reduce funding pressure on the federal government as well as promoting the development of host communities.

According to some industry experts, the new petroleum industry law will also boost capacity development in identified skills gaps. The PIA, which contains five Chapters, 319 Sections, and 8 Schedules dealing with Rights of Pre-emption; Incorporated Joint Ventures; Domestic Best Price, and Pricing Framework, has provisions for legal governance, regulatory and fiscal framework for the oil and gas industry in Nigeria and the development of host communities. With the new law in place, the NNPC will be transformed into a limited liability company with such functions as dealing with gas infrastructure, midstream operations; fiscals, taxes, and royalties; and host community development as well as engaging in renewable business. Upstream & Downstream sectors.

Speaking after signing the PIB into law, Buhari boasted that previous administrations in the country lacked the political will to pass the PIB and that the country lost about $50 billion worth of investments in 10 years as a result of the non-passage of the PIB.

Unfortunately, the PIA is coming into force when the international community is pushing for alternatives to fossil fuel because of the effects of fossil fuel on the environment.

However, there are assurances from OPEC and some oil experts that oil and gas will still be relevant in driving global economic development despite the growing concerns raised by the United Nations Climate Change Conference of Parties (COP26). But some oil majors are already shying away from investing in new oil frontiers and scaling down their investments in oil explorations and production.

Reacting to this development, the federal government says it is working at creating and attracting financing initiatives for investors through constant engagement with stakeholders in the oil and gas industry.

Speaking at the stakeholders’ engagement with the Independent Petroleum Producers Group (IPPG) in Lagos, the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission, NUPRC, Gbenga Komolafe, explained that President Buhari, has provided robust fiscal provisions to address the new funding challenges. According to him, the industry is facing critical challenges and the outcome of the deliberations at COP26, there will equally impact the industry due to the fact that the stakeholders are setting the global warming standard at 1.5 degrees Celsius as they target at impacting financing in the energy transition regime.

In his speech at the COP 26 high-level side event on improving global infrastructure hosted by President Joe Biden of the United States, EU Commission President, Von Der Leyen and the UK Prime Minister, Boris Johnson, President Buhari said that $1.5 trillion was the cumulative estimated amount needed by Nigeria over a 10-year period, to achieve an appreciable level of the National Infrastructure Stock.

According to a statement signed by presidential spokesperson Garba Shehu, Buhari said that Nigeria was ready for foreign investments in infrastructural development in the country.

‘‘My administration has established a clear legal and regulatory framework for private financing of infrastructure to establish a standard process, especially on the monitoring and evaluation process.

‘‘We introduced the revised National Integrated Infrastructure Master Plan – a policy document that ensures our infrastructure expansion projects is cross sectorally integrated and environmentally friendly, ’’ he said.

He welcomed the G7 countries for its ground-breaking plan to mobilize hundreds of billions of dollars of infrastructure investment for low – and middle-income countries.

He noted that the “Build Back Better World” plan, an initiative of the G7 countries, is expected to be a values-driven, high-standard, and transparent infrastructure partnership.

‘‘It is our fervent hope and expectations that this plan will be pursued to its logical conclusion in order to bridge the infrastructural gap between the North and South,’’ he said.

‘‘This virtuous circle can take various forms in stimulating the economy,” he said.

The Nigerian leader noted that infrastructure investment should, therefore, take into account economic, environmental and social, and governance aspects, guided by a sense of shared, long-term responsibility for the planet, consistent with the 2030 Agenda for Sustainable Development.

‘‘Furthermore, Infrastructure projects should align with national strategies and nationally determined contributions for those countries determined to implement them, and with transitioning to long-term low emissions strategies, while being mindful of country circumstances,’’ he said.

Buhari also called for the environmental impact of infrastructure investment to be made transparent to all stakeholders, noting that this will enhance the appreciation of sustainable infrastructure projects and increase awareness of related risks.

Despite the effects the new and aggressive campaign against fossil fuel, especially in the area of funding exploration activities, the Nigerian oil industry recorded impressive achievements in 2021.

And for the average Nigerian consumer of petroleum products, the NNPC and its management led by Mele Kyari, should be scored high since they have not witnessed the annual scarcity of petrol and the prolonged strikes by the two major unions in the industry. However, the last month of the year is usually critical in assessing the performance of the Corporation, especially in the area of petrol scarcity and high prices of the product in December. But the same cannot be said of the price of cooking gas which has gone up from N3500 for 12.5kg in the first quarter of 2021 to N8500 in November and December.

However, the performance of the nation’s oil industry cannot be assessed only from the point of view of the supply and prices of the petroleum products in the country. In what appears like the report card of the oil industry and the operations of the NNPC under Kyari, who assumed office as the Group Managing Director of the NNPC in July 2019 was unveiled in 2021.

According to report released by the NNPC, the drive to achieve the national crude oil reserves of 40 billion barrels, led to the revival of oil exploration in the inland basins with the drilling of the Kolmani River II Well, which resulted in oil find in commercial quantity in the Upper Benue Trough. According to reports from the NNPC, drilling of Kolmani River III Well is ongoing with very high prospect of oil find, while Seismic data collection is ongoing in the Bida and Sokoto Basins. Plans are also underway to re-launch the exploration work in the Chad Basin. Another achievement of Kyari in his bid to raise the nation’s oil production to 3 million barrels per day was the resolution of the dispute involving Shell and Belema Oil that shut in over 30,000 barrels per day oil production in OML 25. In May 2021, the NNPC signed series of agreements with SNEPCo and other PSC partners to resolve the disputes around another deep offshore block, OML 118, leading to the renewal of that acreage with the prospect of a new $10 billion investment in the development of the Bonga South-East Field to boost the nation’s oil production.

In addition, the NNPC secured a number of alternative funding facilities for the Nigerian Petroleum Development Company (NPDC) and some of the Joint Ventures to facilitate further development of assets. These include: the N875.75m NPDC OML 65 Alternative Funding and Technical Services package with CMES-OMS Petroleum Development Company, the $3.15bn Alternative Financing Package with Sterling Exploration and Energy Production Company Limited (SEEPCO) and other partners for the development of NPDC’s OML 13. First oil of about 7,900bpd was achieved from the project on 1st April, 2020, while production is expected to peak at 94,000bpd of oil and 542mmscfd of gas within four years.

In the area of gas development, the NNPC executed many development programmes in keeping with the aspiration of the federal government to diversify the nation’s economy by transforming it into a gas driven economy. These include the Final Investment Decision on the NLNG Train 7 Project in December 2019. The project is expected to generate over $20 billion of revenue to the government over the project’s lifecycle, 10,000 direct and 40,000 indirect jobs. In May 2020, the NNPC signed the Engineering, Procurement and Construction, EPC, contract of the NLNG Train-7 project. The contract was signed with the SCD JV Consortium, comprising affiliates of Saipem, Chiyoda and Daewoo. The execution of the EPC contract signals the effective commencement of the detailed design and construction phase of the multi-billion dollar project, which on completion, is expected to raise the NLNG production capacity by 35 percent from the current 22 million tonnes per annum, MTPA, to 30 MTPA.

On 15th June, 2021, the ground-breaking ceremony of the NLNG Train 7 Project was conducted signaling the commencement of construction work on the project.

The NNPC also successfully flagged-off the construction of the Ajaokuta-Kaduna-Kano, AKK, gas pipeline project on 30th June, 2020. The project is an integral part of the Trans-Nigeria Gas Pipeline, TNGP, with a capacity to transport about 2.2 billion cubic feet of gas per day. 

In order to provide an alternative to Premium Motor Spirit (petrol) as the sole automotive fuel and reduce the huge importation bill of the product, the GMD led NNPC to key into the Year/Decade of Gas initiative spearheaded by the minister of state for petroleum resources to launch the Autogas initiative. It executed a JV agreement with NIPCO to help in the marketing and distribution of the product to get as many Nigerians as possible to migrate to the use of gas as automotive fuel.

In the refinery sector, the NNPC has embarked on the rehabilitation of the refineries. On 6th April, 2021, the NNPC signed the $1.5 billion Engineering, Procurement & Construction (EPC) Contract Agreement with Tecnimont SpA, for the complete rehabilitation of the Port Harcourt Refinery. On 7th May, 2021, the GMD led NNPC and the contractor, Tecnimont S.p.A, to flag off construction work on the Port Harcourt Refinery rehabilitation project. But there are unconfirmed reports that the Federal Government has suspended the planned rehabilitation of the refineries.

In order to promote transparency and accountability in the operations of the NNPC, Kyari emphasized that transparency and accountability would be the cardinal pillars of his management. And in line with his pledge, he launched the Transparency, Accountability and Performance Excellence, TAPE.

The publication of the 2018 

and 2019 Audited Financial Statements of the Corporation and its 19 subsidiaries registered under the Companies and Allied Matters Act, CAMA, 1990 as amended alongside that of the National Petroleum Investment and Management Services, NAPIMS, to provide clarity on Joint Venture finances. The AFS were published in the Corporation’s website for all interest parties to access and scrutinize. This is the first time the Corporation’s AFS were made public in such a manner.

Despite the impressive results posted in 2020 by the NNPC, the Corporation has posted a revenue deficit of N1.29 trillion between January and September this year. According to local media reports, quoting latest data from the NNPC, despite its projected gross annual revenue of N4.979 trillion in the current year, based on a monthly expected income of N414 billion, the corporation was only able to rake in N2.44 trillion during the period.

Although in the first nine months it had made a forecast of a gross income of N3.734 trillion, the NNPC in the months under review failed to hit the target in any of the months. However, it recorded its highest performance yet this year in September, when it grossed in over N400 billion.

Although the oil industry did not experience any major disruptions as a result of industrial actions by oil workers in 2021, but the President of the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, has reiterated the association’s call on the federal government to increase local refining capacity and remove all observed encumbrances to the full rehabilitation of the three other refineries as a way to end the current debate on deregulation and fluctuating cost of petroleum products in the country.

Speaking at the 2021 Leadership Workshop organized by the Warri Zone of the Association held in Asaba, Delta State capital recently, Osifo advocated for the revocation of unused licenses for private and modular refineries. “We reiterate our call for the immediate revoke of un-utilized the licenses issued to non-practicing companies and individuals for the establishment of private refineries and re-issue them to those with financial capacities and technical abilities. Also, fulfill the promise to encourage the establishment of modular refineries to sustain the gains already recorded in the sector under the present dispensation,” he said.

Another issue that will confront the nation’s oil industry is the planned removal of subsidy on petrol by the federal government. Although the International Monetary Fund, IMF, is in support of the move by the federal government to completely remove fuel and electricity subsidies early in 2022, but officials of the Nigeria Labour Congress, NLC, has warned that it would mobilise its members and Nigerians to resist it.

Dec. 01, 2021 @ 18:17 GMT